Disadvantage of being a private limited company

Written by nellie day
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Disadvantage of being a private limited company
(Company image by Yuriy Rozanov from Fotolia.com)

Private limited companies are often considered the United Kingdom's version of limited liability companies. Though they have many advantages, including shareholders' limited liability, the ability to make agreed-upon business decisions and business stability--the business is not interrupted by events such as the death of a shareholder, for instance--there are also many disadvantages. High taxes, smaller dividends and complex set-ups often deter small- and medium-sized business owners from setting up private limited companies.

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Profit Sharing

Many private limited companies, or PLCs, are very profitable. Unfortunately, these profits can become diluted because they must be evenly distributed among all shareholders, and many PLCs have up to 50 shareholders.

Taxes

Registered directors of PLCs must maintain impeccable records of profits and losses, including income and expenditures. These records must be kept for at least seven years and are used to complete the corporation's tax returns every year. PLCs must also pay taxes and insurance for their employees.

No Trading

Shareholders in a PLC are not able to sell or transfer their shares to the general public. The 50 or so shareholders that comprise a PLC must keep their shares and cannot trade them on any stock exchange.

Cost

A PLC can be very expensive to create, as it must not only pay taxes and employee insurance, but also any legal fees or other incidentals involved in the business. PLCs can also be quite complex, meaning that lawyers and accountants almost always need to be involved in the PLC from the start, which can be costly.

Lack of Privacy

Even though shares in a PLC cannot be publicly traded, information concerning the company is made public. Account balances and details about the company's directors, including their names and contact information, must be made available upon request.

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